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November 1, 2012

Moody's Says Sandy Likely to Drive Further Rate Increases

The brunt of the losses will likely be borne by State Farm, Allstate, Travelers and Liberty Mutual

Moody’s Investors Service says in a new report that one positive result of Hurricane Sandy for insurance companies is that the event will likely help support price increases going into 2013.

The Moody’s analysts say that as “large national writers, these companies have diversified exposures and strong capital bases to withstand weather-related volatility.”

Moody’s says that the property and casualty industry as a whole is currently at a level of relative capital strength, with good risk-adjusted capitalization, moderate financial leverage, and earnings that have benefited from price increases and relatively low weather-related losses through the first three quarters of the year.

“So despite the negative earnings impact of Hurricane Sandy, we expect that large diversified insurance carriers can absorb the negative impact with their capital strength intact,” Moody’s says.

Moody’s, Fitch and Credit Suisse all note that the likely losses will be in the $8 billion to $10 billion range, and Moody’s notes that “…little earnings or capital relief will be gained through reinsurance covers.”

The Moody’s analysts say that the wide geographic spread of Sandy means that claim frequency will be high.

The Moody’s report also notes, “We expect the majority of insurance losses to stem from homeowners policies, commercial property coverages and business interruption (e.g., commercial multi-peril, allied, fire, inland marine), and to some degree automobile policies.”

The Consumer Federation of America yesterday challenged the idea that Sandy should lead to rate increases. In a statement, CFA said, “There is no reason, actuarially, for insurers to raise rates or cut back coverage due to Hurricane Sandy, which is a storm well within the projections of insurers’ current rate schedules. Insurers have already raised prices and cut back coverage along the East Coast of America and no further price or coverage action is called for.”

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